Airlines lining up for Boeing 787 compensation

By

Agencies

PublishedThursday, April 10, 2008

Airlines lined up on Thursday for compensation after Boeing Co announced a further six-month delay for its new 787 Dreamliner plane, with Air New Zealand, Air India and Japan's two big carriers eyeing redress.

The US plane maker announced the third major delay for the revolutionary plane on Wednesday, promising first delivery in the third quarter of 2009, more than a year after the original target of May this year – with an indefinite delay for a short-range model favoured by the Japanese carriers.

Air New Zealand and Air India said they would seek compensation. All Nippon Airways (ANA), due to get the first 787 off the assembly line, and Japan Airlines said they planned claims after assessing the impact.

Australia's Qantas, the plane's second-biggest buyer ordering 65 planes, said it had already put in a claim for redress after previous delays and was due substantial damages.

More than 50 airlines are waiting for 892 Boeing 787s, worth a combined $145 billion (Dh532 billion) at list prices.

Northwest Airlines Corp said it would fly older planes for longer, while waiting for Boeing to address problems with the carbon-composite Dreamliner, which the Chicago-based firm had touted as a breakthrough that would change aviation.

Despite the problems, Boeing shares jumped 4.8 per cent on Wednesday and shares in most of its US parts suppliers for the airliner also rose, with the delay much shorter than Wall Street had expected.

JAPAN HIT HARD

Japan Airlines and ANA, the two customers for a shorter-range 787-3 variant of the Dreamliner, will be among those waiting longest for their orders to be filled.

Boeing indefinitely delayed deliveries of the 787-3 model, saying it would focus on the standard 787-8 and then a larger, stretched 787-9 variant.

JAL and ANA would have to overhaul plans based on the more efficient planes, said Fitch Ratings analysts Satoru Aoyama.

"They will have to rethink their entire strategy of coping with fuel costs in this day and age, when oil is costing $110 (Dh404) per barrel," he said.

ANA spokesman Shinichi Shinkawa said the company would decide the size of compensation to seek once the overall impact from the delay on its business became clear. Its shares fell 1.9 per cent.

Shares in JAL, which has 35 of the planes on order, fell 2.3 per cent, as a spokesman said it too planned compensation talks.

"The 787 is an extremely fuel-efficient aircraft," said Japan Airlines' chief executive Haruka Nishimatsu, on the sidelines of a press conference in Los Angeles.

"A delay will impact us significantly."

The problems at Boeing mirror embarrassing and costly delays at archrival Airbus, a unit of European aerospace group, which was two years late with its A380 super jumbo.

If delays on the plane get even longer, airlines might postpone or cancel orders, which would likely boost sales of Boeing's established 767 and 777 models and increase interest in Airbus's competing A350 XWB.

OUTSOURCE BLUES

The 787 has been held up as Boeing makes slow progress on assembling the plane and struggles to make suppliers perform.

Its plan was to outsource almost all major manufacturing to outside companies and then assemble the plane itself but found this makes it hard to monitor mistakes and delays.

A spokesman for state-owned Air India said it would seek compensation, but had not yet received details from Boeing on how much longer it would have to wait for its 27 Dreamliners.

The delays were particularly painful for the Indian airline as it needed new planes to rebuild its international market share in the face of strong competition, said Derek Sadubin from a Sydney-based think tank, the Centre for Asia-Pacific Aviation.

But he added that other airlines, facing a faltering U.S. economy and an industry downturn, may not be too worried.

"There will be less capacity in a market that is turning down, and this is possibly a good thing as yields and passenger load factors will stay high," Sadubin said.

"Carriers are outwardly expressing disappointment but inwardly they could be quite relieved."

LONGER FOR SOME?

Qantas, the second-biggest Dreamliner customer behind a leasing firm, said it had made leasing arrangements to alleviate any capacity constraints caused by the further delay.

"We did anticipate a further delay and have been working on contingencies for some time," Chief Executive Geoff Dixon said in a statement, adding Qantas was entitled to substantial damages.

Air New Zealand, with eight 787s on order, said it would begin compensation talks with Boeing.

"While disappointed, Air New Zealand has retained sufficient flexibility in its existing portfolio of leased and owned aircraft to ensure no capacity shortfall arises," Chief Financial Officer Rob McDonald said in a statement.

Shares in the largely state-owned airline, which is looking to build capacity and start new routes into Asia and the Americas, fell 2.2 per cent while Qantas shares fell 3.7 per cent.

Northwest Airlines, the fifth-largest US airline, which is buying 18 of the planes, said it would initially use Boeing's older and larger 747-400 jumbos for international flights where it had planned to introduce 787s.

"We are disappointed by the latest delays, but we still believe the 787-8 will be a game-changing airplane for our fleet," spokeswoman Tammy Lee said. (Reuters)